Central Bank of Ireland relaxes Portfolio Transparency Requirements for UCITS Exchange Traded Funds

On 17 April 2025, the Central Bank of Ireland (the Central Bank) released an updated version of its UCITS questions and answers document (the UCITS Q&A), in which it has introduced changes to the portfolio transparency requirements for UCITS exchange traded funds or UCITS ETF share classes (collectively ETFs). The revised UCITS Q&A allows for greater flexibility in the frequency of portfolio holdings’ disclosure, while retaining the requirement for appropriate information to be disclosed on a daily basis to facilitate an effective arbitrage mechanism.

Background

It has long been recognised that the provision of sufficiently detailed portfolio information to contractual authorised participants (APs) and market makers (MMs) is required in order to facilitate an effective arbitrage procedure (which enables APs and MMs to maintain a trading price for an ETF’s shares on the secondary market that does not significantly vary from the net asset value per share on the primary market). This is to the benefit of investors and helps to support liquidity on the secondary market.

To date, the Central Bank has required UCITS ETFs (or funds with ETF share classes) to have in place arrangements to disclose the identities and quantities of portfolio holdings on a daily basis. However, in recent years, there has been much discussion at international level between regulators as to what level of information needs to be disclosed to facilitate an effective arbitrage procedure. This was noted in IOSCO’s Final Report on ETF Good Practices (May 2023) (the IOSCO Report), which highlighted differing approaches across jurisdictions and noted the potential need to protect an ETF’s proprietary trading strategy (and thereby the investors in the ETF) against the possibility of “front running” (i.e. where market participants could exploit their knowledge of upcoming ETF rebalancing trades for their own benefit). In this regard, IOSCO noted a number of effective alternative approaches to daily disclosure of an ETF’s portfolio holdings, such as lagged public disclosure, proxy basket disclosure and proxy information/metrics for certain asset classes such as fixed income ETFs.

Noting the international debate and developments in this area (as outlined above) and the Central Bank’s own consideration of portfolio information disclosure subsequent to its initial consideration set out in Paper 6 feedback statement, the Central Bank embarked on industry engagement to consider the implementation of the outcomes of the IOSCO Report in Ireland. In November 2024, the Central Bank issued a Dear CEO letter in which it highlighted the key findings from its thematic review of the primary and secondary market trading arrangements of ETFs in Ireland. In extending its consideration of the IOSCO Report and in particular Measure 2 of the IOSCO Report, in which IOSCO encouraged regulators to consider requirements regarding the transparency of an ETF’s portfolio and/or other appropriate information provided to market participants to facilitate effective arbitrage, the Central Bank continued its engagement with industry to seek to consider the requirements relating to portfolio information disclosures and to develop a proportionate and effective approach to different models of portfolio transparency. As noted by IOSCO, the provision of portfolio information is generally associated with facilitating an efficient arbitrage mechanism, resulting in narrower premiums/discounts, tighter spreads and better liquidity in an ETF.

Updated Position

In a welcome development for existing Irish authorised ETFs and active managers seeking to enter the European exchange traded fund market, the updated UCITS Q&A facilitates ETFs disclosing the identities and quantities of portfolio holdings on a daily or periodic basis to the broader market, while respecting the requirement to have in place arrangements to ensure that information regarding portfolio holdings is provided to authorised participants (APs) and market makers (MMs) on a daily basis in order to facilitate an effective arbitrage mechanism in the secondary market. In line with the statement from Deputy Governor Derville Rowland, the Central Bank has adopted a principles-based approach to such portfolio information disclosure rather than focusing on one particular model.

The updated UCITS Q&A also reflects the requirements of the Central Bank UCITS Regulations for an ETF to disclose its policy regarding portfolio transparency and where information on the portfolio may be obtained.

Where a UCITS retains the position of providing daily portfolio information disclosures to the market, the UCITS manager must ensure that the prospectus discloses the type of information that will be provided in relation to the portfolio and that such portfolio information is made available on a non-discriminatory basis.

Where a UCITS elects to provide portfolio information disclosures to the market on a periodic basis, the “periodic” disclosures will be permitted to be made to the broader market as at the end of each calendar quarter within 30 business days of the end of that quarter. Where it is proposed that a UCITS will disclose portfolio holdings on a periodic basis, the UCITS manager must ensure that:

1. appropriate information is disclosed on a daily basis to facilitate an effective arbitrage mechanism;

2. the prospectus discloses the type of information that is provided in point 1;

3. this information is made available on a non-discriminatory basis to APs and MMs;

4. there are documented procedures to address circumstances where the arbitrage mechanism of the ETF/ETF share class is impaired;

5. there is a documented procedure for investors to request portfolio information; and

6. the portfolio holdings as at the end of each calendar quarter are disclosed publicly within 30 business days of the end of the quarter.

Following the update to the UCITS Q&A, boards of UCITS with either exchange traded funds or exchange traded share classes should consider the policy in place in relation to portfolio information disclosure and whether the benefit of making disclosures on a periodic basis is appropriate.

Further Information

Should you have any queries in relation to this matter (including if you are considering updating your prospectus), please get in touch with any of the below contacts or your usual contact in Dillon Eustace for assistance.